Advice for Day Trading in Penny Stocks

Day trading is one of the best ways of trading in penny stocks. Buying and selling stocks on the same trading day is a way of making the most profit in the shortest amount of time. Day trading can also be extremely exciting as you watch stock prices fall and rise throughout the day, which requires good judgment in knowing when to buy and when to sell. Penny stocks, in particular, are ideal for day trading as they can yield the greatest daily percentage gains in the market. It is quite possible to see a 50% return on just $500 worth of stock, making a day�s trade in penny stocks a profitable one.

Day trading penny stocks also allows you to dip in and out of the market without tying up money in long-term stock options. However, just because penny stocks are of a low price, day trading it not without its risks; because the idea of day trading is to sell all stocks by the end of the day, even if they occur a loss, it is very easy to reach the end of the trading day and discover you�ve made a loss.

Frenetic trading

Unlike long-term trading such as swing trades, day trading offers less�opportunity to study the market, identify current trends, utilize insider information or stock market news and rumors. Because the key to successful day trading penny stocks is to spot stocks that are starting to rise and sell them as soon as the growth trend starts to fall, most day traders admit to operating on mainly instinct. This can make day trading penny stocks quite frenetic and quite risky for the beginner.

Invest in what you know

All this doesn�t necessarily mean you can�t do some research before you invest. Just because many successful day traders think with their gut and use experience built up over years of day trading, it doesn�t mean you can�t implement your own experiences to guide you in what to invest.

For a beginner, investing in companies, industries and funds you know something about, either through your employment or consuming habits, will help reduce risk. Another way of�reducing risk is to invest in local bonds and stocks. Before you begin trading, assemble a list of stock options that you have some experience with and do a little research on how the stock has fared recently. This may not give you much idea as to how the stocks will fare in a single day, but it will give you some solid background to help identify a trend.

Try not to make rash decision such as buying on good news. Just because a company, stock or bond has had some good publicity, doesn�t necessarily mean it will rise that day. The same is true of bad news; stock prices are governed by popularity, not the media, and stock traders are not always led by news reports. It is also worth avoiding any overly risky stocks such as those penny stocks that are not AMEX, NASDAQ, or NYSE listed. Furthermore, when selling securities, use a low cost or discounted broker to avoid heavy transaction charges, as this can wipe out your profits. You can also reduce commissions, expenses and fees by using direct stock purchase, dividend re-investment plans and no-load funds.

Set personal limits

Self-control is essential for day trading. Set yourself a personal budget and don�t go over it, as it is all too easy to keep on spending, especially if you are having a bad day at the markets. It is also important to establish buy, hold and selling rules, such as identifying a price that you will sell a stock at, and sticking to it. Too many people lose money by holding onto a stock too long because they think it will continue to rise, only to discover at their cost that they are wrong.

While a successful day�s trading in penny stocks can offer a far better return than other investments, such as�cash ISA rates, day trading penny stocks is not without its risks. Being prepared, keeping a level head, and not investing more than you can afford will all hold you in good stead when day trading penny stocks, and once you get the hang of it, you�ll find day trading penny stocks both a profitable and enjoyable form of stock trading.